Low Carbon,
High Stakes
Do you have the power
to transform?
Contents
Forewords4
Executive Summary
6
2°C: The Tipping Point for Utilities
8
Five Trends Make the Prevailing Utility Business Model Unsustainable
12
Value Shifts in a Low-Carbon World
18
Five Business Model Pathways Toward a Low-Carbon Energy System
22
Making the Move: Key Actions to Drive Transformation
36
Appendix: Assessing the Value of Low-Carbon Business Model Pathways
40
References42
Forewords
Few challenges are so critical as
accelerating the transformation of the
energy infrastructure of the world to fuel
the needs of a smarter, efficient,
renewably powered economy. The
upcoming COP21 conference represents a
unique opportunity for the international
community to accelerate the transition to
a low-carbon economy producing an
ambitious and concrete commitment to
combat climate change and its impacts.
As a global energy company, Enel feels
called to break ranks with business as
usual and lead the energy revolution.
Around 47% of the energy currently
generated by the Group already comes
from CO2 free sources and we are
committed to reach carbon neutrality by
In the last decades, the world has
undergone massive changes. Technology
has allowed us to change the way we
communicate, work, socialize and live.
Utilities play an important part in this
changing game, evolving from pure-play
centralized power generators and
distributors to energy solution providers.
Steered by an inspiring vision: To be a
global energy providing company, leader
in creating value, innovation and
sustainability, EDP has managed to stay
ahead of the game and move into clean
generation, clean mobility, efficiency
services, access to energy, smart grids,
pump and storage, just to name a few.
All these new businesses required
anticipation and initiative. In some
of them EDP acted as a technology
developer, in others as project facilitator
and in some others even as a visionary
entrepreneur. In all of them EDP is
harvesting greenfield opportunities and
creating additional value in what
previously looked like a zero-sum game.
All these new businesses aim to solve
consumer’s needs or concerns and
4
2050, consistent with the level of
de-carbonization required to limit global
warming to 2°C as a Science Based
Target. Our business plan foresees €8.8bn
of investment in renewables growth by
2019, a 50% increase compared to the
previous plan, which means over 7 GW
of new clean power capacity.
We put sustainability at the core of
our strategy and will keep investing in
the most advanced and innovative
technologies, upgrading and digitalizing
infrastructures and driving efficiency,
to accelerate the process of
de-carbonization over the next few years,
convinced as we are that climate change
is a reality requiring urgent action.
Francesco Starace
CEO and General Manager
Enel Group
contribute towards a sustainable future.
As a result of its strategy, EDP accepted
its responsibility in shaping the future by:
reducing CO2 specific emissions in 75%
till 2030 (in comparison with 2005);
surpassing 75% renewable generation
installed capacity by 2020; reaching more
than 1TWh cumulative savings through
energy services in 2020; investing €200m
till 2020 in research dedicated to clean
energy, efficiency and smart grids and
installing smart grids in more than 90%
of its Iberian customers by 2030.
We believe that change to a more
sustainable world is happening right now
and we are proud to be inspirational
leaders of that drive. The utility sector
is a key player in this transformation.
This is the time to foster collaborative
partnerships built upon innovation,
commitment, cooperation and audacity.
This is the time to set an ambitious
agenda to a more sustainable and
resilient path of doing business. Only
with a strong ambition we will be able
to succeed in our common endeavor of
transformation to a low-carbon economy.
António Mexia
CEO EDP
The electricity system and the utilities
that operate it play a large role in
creating prosperity and providing the
comfort that we have come to expect
from electric power. However, the
environmental and societal consequences
of fossil-fuel based power generation can
no longer be ignored. We are starting to
see the first impacts of climate change
affect our lives and livelihoods. Droughts
and floods are disrupting our food supply,
and increasingly frequent extreme weather
events cause havoc to towns and cities.
Business leaders recognize the need for a
change and governments have begun to
act to foster a transition to a low-carbon
economy. President Obama, for instance,
announced additional incentives to
support private sector investment in
renewable energy. And China has unveiled
its plans for a national emission-trading
system to cut greenhouse gas emissions.
We expect other business and political
leaders to follow suit in the lead-up to
the UNFCCC Conference of the Parties in
Paris in December 2015, and rally around
a critical goal: limiting the average global
temperature rise to 2°C.
As part of this objective, CO2 emissions
from energy supply will need to drop by
90 percent or more below 2010 levels
between 2040 and 20701. For the
electricity sector players, this means
facing some very difficult choices today
and in the years ahead. They must find
a way to make the transition for their
businesses from being traditionally
carbon-intensive to lower-carbon ones—
all while maintaining their ability to meet
the world’s ever-increasing energy needs
and sustaining profitable growth.
It is a tall order, to be sure. However, with
these challenges also come significant
new value and business opportunities—
according to Accenture Strategy’s
estimates, potentially worth €135 to
€225 billion in saved and avoided costs
and €110 to €155 billion in new revenue
per year worldwide in 2030.
Capturing this value will require utilities
to consider three emerging business
model platforms. Leading utilities have
already started to adopt these new
business models to some extent
demonstrating the viability of low-carbon
alternatives that also drive change
throughout the energy system.
Peter Lacy
Managing Director
Accenture Strategy,
Sustainability Services
In this report, we examine five potential
business model pathways in the quest
toward a low-carbon energy system. We
analyze the environmental and economic
value they can deliver, and explore the
capabilities utilities need to adopt and
sustain.
The research behind this report is based
on interviews with executives at leading
businesses in the electricity utilities sector
that are part of the transition, as well as
Accenture Strategy’s modelling and CDP
data analysis. We hope our findings and
conclusions will inspire and help electric
utilities in the transition to the lowcarbon energy system that will define
our future.
Paul Dickinson
Executive Chairman,
CDP
5
Executive Summary
In the quest toward a low-carbon energy system, the electric utilities sector—with a
25 percent share of all carbon emissions globally2—plays a crucial role. How can utilities
move away from fossil fuels in an economically sustainable way? Five low-carbon business
model pathways could enable utilities to significantly reduce greenhouse gas emissions
and capitalize on €135 to €225 billion in saved and avoided costs and €110 to €155
billion in new revenue for the electricity sector worldwide in 2030.
The global community continues to direct
its collective strength to combat climate
change. A major milestone in these efforts
is expected in December 2015, when the
annual UNFCCC Conference of Parties
hopes to create a legally binding and
universal agreement to limit the rise in
average global temperature to 2°C—a
significant drop from the prevailing trend
of 3.6°C 3. It is an ambitious goal, but one
that is necessary to significantly reduce the
impacts on the planet of greenhouse gas
emissions and increasing water scarcity.
With a 25 percent share of all carbon
emissions globally, electric utilities must
successfully embrace low-carbon
solutions for the 2°C goal to be achieved.
Yet because their business model is little
changed from a century ago, utilities will
also encounter major challenges in
substantially reducing—and ultimately
eliminating—their reliance on fossil fuels.
Utilities have been making progress to
reduce greenhouse gas emissions and
increase their share of renewable energy.
But the reality is that merely continuing
doing what is required by climate
regulation will no longer be enough.
They will need to substantially accelerate
efforts to realize the long-term ambitions
required in a 2°C world.
as governments have introduced
climate policies and regulation calling
for reductions in demand and
incentivizing investment in lowcarbon sources of electricity.
•Technology enables low-carbon energy
at scale. While policymakers are
stepping up these efforts, advances
in technology—the biggest game
changer—are making alternative
sources of energy more attractive
to consumers and businesses.
•Climate change impact threatens
the current and future energy supply.
Climate change itself imposes new
challenges to utilities through changing
precipitation patterns, extreme weather,
rising air temperatures, and the risk of
water shortages, potentially affecting
the fuel supply chain and cooling
of thermal power plants.
The drive toward a 2°C scenario is just
one element pressuring utilities to
change. It is part of five broader global
trends undermining the industry’s
prevailing business model and pressuring
utilities to transform themselves to
embrace sustainable alternatives:
•Policy pushes for 2°C reduction.
Policy has been the main driver for the
shift to low-carbon electricity supply,
Figure 1. Five trends and five low-carbon business model pathways: four key actions to help capture the opportunity.
5
TRENDS
4
Policy
Technology
Physical climate
change
End-user
demand
Non-traditional
entrants
CO2
Energy
as-a-service
provider
Local low-carbon
energy access provider
Large-scale
low-carbon
electricity generator
Flexibility
optimizer
ACTIONS
Take leadership
and commit
6
Keep
optimizing
Choose
and transform
Join
forces
CU
Carbon capture
and use operator
5
BUSINESS
MODEL
PATHWAYS
•End users demand energy efficiency
and low-carbon energy. Rising costs
of electricity, climate change concerns
and technology developments together
are convincing and incentivizing end
users to reduce their energy demand
and shift to (and possibly produce
their own) low-carbon energy.
•Non-traditional entrants challenge
incumbents. Increased competition,
particularly from new entrants from
other industries as well as more
innovative utilities, pose a growing
and significant threat to traditional
utilities’ business.
Together, these trends highlight the risks
inherent to the established utility business
model, based on selling electricity as a
commodity, which is not equipped for a
low-carbon transition. In fact, utilities will
face rising costs and risks from increased
complexity and cost of carbon, as well
as pressure on revenues from selling
electricity, in the next 15 years. According
to our analysis, the costs of building and
operating power generation facilities and
networks could more than double between
2015 and 2030, if we continue business as
usual. Increasing demand for electricity
will be a major factor, while the impacts
of climate change and carbon pricing will
also add to rising operating costs.
Electricity prices would need to rise by
almost one-third on average to make up
for this increased investments and carbon
costs—a solution that is neither politically
acceptable nor socially sustainable. So
how can utilities facilitate the transition
to a low-carbon energy system in an
economically sustainable way?
The good news is that while utilities’
traditional value pool is at risk, new ones
could be created. Our analysis has found
that the industry as a whole has a value
opportunity of €135 to €225 billion in
saved and avoided costs and €110 to
€155 billion in new revenue per-year
worldwide in 2030.
The electric sector players can realize
these value opportunities by considering
three emerging power plays:
•Low-carbon energy producer
optimizing the mix of energy sources
•Distribution platform optimizer
meeting demand with the optimal
sources of supply
•Energy solution integrator providing
entirely new services to help customers
optimize their energy production and
consumption
These represent platforms under which
low-carbon business model pathways can
support utilities in moving away from
fossil-fuel while growing profitably.
Adopting these business model pathways
will not be easy, and each utility will face
unique challenges along the way.
Furthermore, the details of the
transformation—strategies and timelines—
will vary by utility depending on a variety
of factors. However, there are four highlevel actions that all electric utilities could
consider as they begin their transformation:
•Take leadership and commit by
ensuring all levels of their organization
know what the 2°C scenario means
for their business and how their
organization is responding.
•Keep optimizing their current operations
to reduce CO2 emissions and free up
funds for the transformation to the new
models.
•Choose where to play and transform
by developing new business models and
strategies that build on their current
capabilities and are tailored to local
market conditions.
•Join forces to develop capitalintensive innovations in electricity
storage and carbon capture and use
(CCU) technologies.
As the world continues to work to address
the climate change challenge, it needs an
engaged, motivated, and effective power
sector that is committed to transforming
itself to adopt new low-carbon business
models.
A number of utilities have already taken
significant steps in doing so. By following
their lead, other utilities can help the
international community achieve its 2°C
goal while positioning themselves to
ensure their existence in a more sustainable
future.
Table 1. Three power plays and five low-carbon business model pathways.
Low-carbon energy producer
Distribution platform optimizer
Energy solution integrator
Large-scale low-carbon electricity
generators could capture €100 billion
to €160 billion in avoided costs annually
by managing a low-carbon energy
portfolio.
Flexibility optimizers could tap into
a €35 billion to €55 billion annual
market by optimizing efficiency across
the value change, for example by
matching supply and demand through
energy storage technology.
Energy as-a-service providers could
benefit from a €65 billion to €80 billion
annual market by delivering energyrelated services e.g., energy monitoring,
energy efficiency program, etc. to
customers instead of selling electricity
as a commodity.
Carbon capture and use operators could
generate as much as €10 billion annually
by reducing carbon emissions from
carbon-intensive plants and potentially
offering CO2 or carbon-based products as
input for industry processes.
Local low-carbon energy access providers could build a collective €10 billion to €20
billion annual business by partnering with communities and individuals to help them
access locally generated low-carbon energy­.
7
2°C: The Tipping Point for Utilities
8
All industries, to varying degrees, are dependent upon and have an impact on the
environment and natural resources. With a 25 percent share of the circa 50 Gt CO2
emissions globally, the electric utilities sector has a more significant impact than most4.
That puts electric utility companies in a particularly vulnerable, but critically important,
position in the efforts to combat global climate change.
The 2015 annual UNFCCC Conference
of Parties conference in Paris (COP21)
has once again put carbon reduction at
the top of its agenda, and business and
political leaders are expressing their
commitment to the cause. If pledges
made by all countries ahead of the Paris
Conference are implemented, “there
will be a material impact on the energy
sector,” according to Fatih Birol, executive
director of the International Energy
Agency5.
The objective: limit the average global
temperature rise to 2°C, well below the
current trend of 3.6°C (see next page). As
part of the 2°C scenario, CO2 emissions
from electricity generation (i.e. 13Gt in
20126) are expected to drop by 90 percent
or more below 2010 levels between 2040
and 20707.
generation in the emerging world is
essential. Currently, the importance of
economic growth makes many emerging
countries focus on affordability and
reliability of electricity, outweighing
considerations about how to use energy
more efficiently9. Public institutions,
such as the World Bank and the European
Investment Bank, could provide
technological and organizational
expertise, as well as financing, to help
emerging economies develop low-carbon
electricity systems without compromising
their access to affordable and reliable
supply. The World Bank has, for example,
has financed 3.5 million solar home
systems in Bangladesh’s rural communities,
creating 70,000 installation jobs and
benefitting 15 million people, thereby
overcoming the political and financing
constraints10.
Achieving these goals will be especially
difficult given the growing need for
electricity. With global demand set to rise
by 2.1 percent per-year on average by
2040, primarily in emerging markets,
power sector CO2 emissions would
increase by 16 percent under “business
as usual” conditions8. To reach a 2°C
scenario, low-carbon electricity
Of course, utility companies are not
sitting idly by. Many European utilities,
for instance, have set targets for reducing
GHG emissions and increasing their share
of renewable energy in line with the EU
Energy and Climate targets for 2020, and
are roughly on track to meet them11.
This is a good first step for reducing
power sector emissions. However, GHG
emissions reductions must accelerate
to achieve the 2°C scenario identified by
the IEA12, which means utilities must set
targets beyond the horizon of existing
policy—much like what U.S. utility NRG
and Enel Group have done in setting
targets that extend to 205013 14.
Simply stated: While utility companies
have made significant progress in
reducing their environmental impact to
date and are on track to achieve their
goals for 2020, they will need to step up
their game to compete in a 2°C scenario
beyond that point in time.
74%
of CDP utility respondents have GHG
emission reduction targets in place
12%
of CDP utility respondents have GHG
emission reduction targets beyond
2020 in place
Source: CDP, 2015. CDP Climate Change Information
Request
Figure 2. CO2 emissions from electricity generation need to be reduced by 50% by 2030 in the 2°C scenario
CO2 emissions from electricity generation (Gt/yr)
5,2
4,1
2,1
3,8
1,7
1,3
0,8
0,7
2012
2030
US
Current emissions
1,6
2,2
0,9
2030
2012
EU
Business-as-usual emissions
2030
2012
China
Russia
2030
2,6
1,0
0,7
0,6
0,5
2012
0,9
4,3
2012
2030
India
2012
2030
Rest of World
2°C Scenario emissions
Source: “World Energy Outlook 2014”, © OECD/IEA, 2014, http://www.worldenergyoutlook.org/.
9
The 2°C scenario:
This report assumes a future that is based
on the International Energy Agency’s 450
Scenario*, which illustrates what it would
take to achieve an energy trajectory
consistent with limiting the long-term
increase in average global temperature
to 2°C. This scenario assumes that a CO2
price is adopted in all major economies,
and CO2 prices rise to between €66 per
ton and €88 per ton in 2030. Additionally,
it assumes a phase-out of all fossil-fuel
subsidies by 2035 and increased energy
efficiency standards in buildings and
transport.
In the power sector, investment shifts
towards renewables, so that 41 percent
of electricity generated worldwide
is from renewable sources, compared
to 30 percent in the business as usual
scenario. The construction of coalfired power plants is limited, but no
accelerated closure of fossil-fuel
power plants is planned.
* For more details about the assumptions behind the scenarios, please refer to the IEA World Energy Outlook 2014,
Chapter 1.
Figure 3. The 2°C scenario involves reduced energy demand and a shift to
renewables in the global generation mix.
Generation Mix
Annual generation output (TWh)
35,000
33,881
30,297
30,000
33%
20%
25,000
1%
22,721
2%
22%
20,000
41%
23%
15,000
16%
5%
10,000
12%
23%
20%
16%
11%
5,000
16%
21%
14%
5%
0
2012
2030:
Business as usual
2030:
2°C scenario
Coal
Gas
Hydro
Oil
Nuclear
Renewables
Source: “World Energy Outlook 2014”, © OECD/IEA, 2014, http://www.worldenergyoutlook.org/.
10
11
Five Trends Make the Prevailing
Utility Business Model Unsustainable
12
The proposed drive toward a 2°C scenario promises to have a major impact on utility
companies around the world. However, it is just one element in a confluence of
developments that will make business increasingly difficult for utility companies in
the next 10 to 15 years.
Several major trends, in particular, are
undermining the industry’s prevailing
business model, which has remained
largely unchanged for decades:
•Policy pushes for CO2 reduction
•Technology enables low-carbon
energy at scale
•Climate change impact threatens
the current and future energy supply
•End users demand energy efficiency
and low-carbon energy
•Non-traditional entrants challenge
incumbents
Together, these trends are pushing
electric utility companies to decouple
their business activity from emissions,
which in turn require utilities to transform
their business model to support
sustainable, low-carbon solutions.
Policy pushes for CO2 reduction
Utilities consider cap-and-trade schemes
together with international agreements
among the biggest drivers for CO2
reduction to date15. International and
national climate initiatives—such as the
Kyoto agreements, the EU 20-20-20
goals, President Obama’s announced
Clean Power Plan and the aforementioned
expected outcomes of COP21*—prescribe
increasingly deep greenhouse gas emissions
cuts. And regulation is set to become
more stringent, as emissions reductions
will need to go beyond national
commitments to follow the 2°C trajectory.
National policies are already guiding
utility strategies toward investment in
low-carbon solutions. Emissions Trading
Systems in Europe, areas of North and
South America, as well as Asia, set the
framework, but have so far failed to
provide a meaningful price signal for
investors. There is genuine momentum
worldwide to strengthen and extend
emissions trading in the near future, as
the European Commission has agreed on
a market stability reserve to tighten the
supply emissions allowances according
to economic conditions16, and China has
announced plans for a national emissions
trading scheme starting in 201717.
Further reductions in the number of CO2
emissions rights available will raise CO2
prices and force companies to reduce
their carbon footprint even more.
In South Africa, regulation pushing for
energy efficiency and renewable energy
has been the most significant driver of
the decarbonizing of the country’s energy
system in the past decade, according to one
executive at South African utility Eskom18.
In addition, cities address climate change
at the local level with such moves as tax
reductions and subsidies. For example, the
Covenant of Mayors, a European
movement involving local and regional
authorities, is committed to meeting and
exceeding the EU 20-20-20 goals19.
73%
of CDP utility respondents see
regulation regarding carbon emissions
as a risk
76%
of the utilities that have implemented
carbon pricing are subject to carbon
price regulation. The prices they use are
broadly in line with regulated prices.
Source: CDP, 2015. CDP Climate Change Information
Request
* This report was published before COP21
Figure 4. Recent GHG emission reduction efforts in various countries
United States
Canada
Germany
Japan
The US EPA finalized its
proposed Carbon Pollution
Standards for Existing Power
Plants (Clean Power Plan),
establishing different target
emission rates for each state.
Overall it is projected to
achieve a 32 percent cut in
electricity sector emissions
by 2030 based on 2005
emission levels.
Canada announced its aims to
reduce its GHG emissions by
30% by 2030 based on 2005
emission levels, with the help
of regulating methane
discharges in the oil and gas
sector, natural gas electricity
plants emissions as well as
the chemicals and nitrogen
fertilizer industry.
Germany has agreed to reduce
operation of about five of the
largest lignite-fired electricity
plants in the country,
representing a total capacity
of 2.7 GW, to meet its target
of reducing CO2 emissions by
40% by 2020 based on 1990
emissions levels. The electricity
plants will merely function as
“capacity reserve“.
Japan is considering rejecting
two new coal-fired electricity
projects with a combined
capacity of 3.1 GW amidst
concerns over Japan’s ability
to meet a proposed 26% cut
in greenhouse gas emissions
between 2013 and 2030.
Source: C2es.org,. 2015. ‘Q&A: EPA Regulation Of Greenhouse Gas Emissions From Existing Power Plants’. http://www.c2es.org/federal/executive/epa/q-a-regulationgreenhouse-gases-existing-power; Enerdata.net,. 2015. ‘Research On Energy Efficiency, CO2 Emissions, Energy Consumption, Forecast.’. http://www.enerdata.net.
13
Technology enables low-carbon
energy at scale
The biggest game changer in the transition
to a low-carbon world is technology. The
value proposition of low-carbon solutions
is continuously improving due to rapid
advances in technology and decreasing
costs of solutions such as distributed
generation (e.g., solar photovoltaics (PV)
and battery storage). For example, the
cost of solar per MWh has decreased by
a factor of three between 2010 and 2015,
making solar cheaper in some cases than
combined cycle gas turbines or coal-fired
power plants20.
development of renewables leads to a
reduction in the annual operating hours
of fossil fuel plants, because renewables
like wind and solar PV operate at low
marginal costs. Running less of the time,
it becomes more difficult for fossil fuel
plants to recover investment during their
lifetime, and stimulating investments in
renewables—leading to a self-reinforcing
cycle. As policy incentives are gradually
phased out and renewable energy moves
from a subsidy-driven market to a fully
commercial solution, utilities will have to
determine the right pace for their own
investments in this area.
As a result, investment in such
technologies is growing dramatically. In
2015, renewables represented more than
half of all electricity generation capacity
investments worldwide21. Going forward,
the IEA expects that between 2014 and
2025, investment in renewable electricity
production will be almost double that in
fossil-fuel power generation22. Extensive
Deployment of intelligence in the
electricity system provides a further boost
to the growth of renewables. For instance,
real-time analytics and two-way
communication give consumers more
control in choosing their supply source
and optimizing their electricity use,
leading to new business models for
companies such as Sungevity (see case
76%
of the utility executives expect to
support the integration of distributed
resources in the next 10 years
68%
of the utility executives expect to
invest in distribution sensing and
automation in the next 5 years
Source: Accenture, 2015. Accenture’s Digitally Enabled
Grid program, 2014 executive survey.
study page 25). And a missing element in
the energy transition, battery technology,
is being scaled rapidly by companies such
as BYD, Tesla and Panasonic. The
opportunity is sizeable, as distributed
generation could make up one-third of
installed capacity in the US by 201723.
This will transform generation as we know
it, and is a direct threat to traditional
utilities’ revenues.
Figure 5. Renewable technology costs are decreasing and becoming competitive with fossil fuels
The levelized cost of electricity represents the per-megawatthour cost (in real euros) of building and operating a generating plant
over an assumed financial life and duty cycle.
Levelized cost of electricity (€ / MWh)
1000
900
800
700
600
500
400
300
200
100
0
2010
2015
Solar PV
Renewable energy
2010
2015
Onshore Wind
2010
2015
Gas CCGT
Traditional energy
Source: NEA/IEA,. 2015. Projected Costs Of Generating Electricity 2015. Paris: OECD Publishing.
14
2010
2015
Nuclear
2010
2015
Coal
Climate change impact threatens
the current and future energy
supply
Climate change itself poses new
challenges to utilities through changing
precipitation patterns, extreme weather,
and rising air temperatures. Both water
withdrawal and water consumption for
power generation are due to increase
in the next several decades, making
availability of and access to water a
risk for utilities24.
Yet while over 80 percent of energy sector
executives identify water scarcity as a
significant risk, only 18 percent conduct a
comprehensive water risk assessment and
approximately one-third have assessed
how water challenges may constrain
long-term (more than five years) business
growth25. Furthermore, water poses a
significant risk in electric utilities’ supply
chains for fuel sources, as primary fuel
production requires significant amounts
of water26.
A clear example of the potential impact
of water issues can be seen in Brazil,
where water reservoirs—specifically in the
populated Southeast—have reached an
all-time low due to continued drought.
This has led to a drop in hydro electricity
generation and a proportional increase
in Brazil’s fossil-fuel power generation—
which, in turn, has driven an increase
in carbon emissions (with a potential
upswing of 15 percent to 30 percent
per-year) and a spike in electricity prices
(of 60 percent alone in 2015).
93%
of CDP utility respondents see physical
climate change as a risk
38%
of CDP utility respondents experienced
detrimental impacts related to water
in 2014, affecting costs and brand
value negatively
Sources: CDP, 2015. CDP Climate Change Information
Request; CDP, 2015. CDP Water Information Request
The hydro-crisis presents an immense
opportunity to bring online new
renewable energy sources, diversifying
and greening the already renewable
Brazilian energy matrix. In addition,
the Brazilian utility AES, seeks develop
enhanced battery storage capacity to
cope with decreasing hydro storage
capacity and increasing intermittent
electricity generation27.
Figure 6. Both water withdrawal and water consumption for power
generation are due to increase in the next several decades
Global water use for electricity generation in a business as usual scenario and its
compound average annual growth rate (billion cubic meters)
Water withdrawal
Water consumption
568
58
+18
+15
43
550
2010
2035
2010
2035
Source: World Energy Outlook 2012, © OECD/IEA, 2012, http://www.worldenergyoutlook.org/.
15
End users demand energy
efficiency and low-carbon energy
On their own, climate change and
technology developments play a major
role in the drive toward low-carbon
solutions. Together, they incentivize end
users to reduce their energy demand and
shift to low-carbon energy.
End users around the world are embracing
the ability of new technologies to give
them insight into and control over their
energy use and bill and choice of energy
source allowing them to reduce their
environmental and societal impact.
For example, around 8 in 10 consumers
in the Philippines (87 percent), Brazil
(80 percent) and China (78 percent)
are considering purchasing residential
monitoring and control products in
the next five years, the highest of any
country.
Figure 7 shows that many consumers are
expressing interest in becoming power
self-sufficient—in effect, becoming
“prosumers.” In fact, close to half of
consumers in Europe and North America
are considering becoming completely
energy-independent, led by those in
Germany (48 percent), the U.S.
(51 percent), and Spain (62 percent).
These figures are even higher in many
emerging markets, reaching 63 percent in
China, 81 percent in Brazil and 88 percent
in South Africa28.
In rural areas, electrification is happening
by completely skipping the development
of electricity grids. For example, in Mexico,
where 3 million people live without
electricity, social projects offer off-grid
communities low-carbon energy access
with photovoltaic home systems.
Figure 7. Up to 90% of the consumers is considering investing in becoming
electricity self-sufficient
88%
Similarly, Phaesun, a German company
specializing in the installation and service
of off-grid wind power and photovoltaic
systems, offers consumers in Somaliland
local low-carbon energy access without
the use of a grid29.
The same shift can be seen in business
and public sector customers. For instance,
large global companies such as Ikea,
Philips, BT and Unilever—part of the
RE100, a global initiative to engage,
support and showcase influential
companies committed to using 100
percent renewable power—have pledged
to use 100 percent renewable electricity
by 2020 and have ambitious targets to
increase their energy efficiency30.
Mars, a global food manufacturer based
in the United States, has joined forces
with Sumitomo, a Japanese integrated
trading company, and BNB Renewable
Energy, a renewable energy generation
asset developer from the U.S., to build a
200MW wind farm expected to supply
100 percent of Mars’ U.S. energy demand31.
69%
81%
63%
62%
of CDP utility respondents believe that
changing consumer behavior leaning
towards more sustainable products
represents new business opportunities
59%
51%
52%
48%
41%
39%
36%
of consumers are likely to install
energy technologies to generate part
or all their own power by 2020
Sources: CDP, 2015. CDP Climate Change Information
Request; Accenture, 2015. The New Energy Consumer:
Unleashing Business Value In A Digital World.
South
Africa
Brazil
China
Spain
Australia
USA
Germany
Great
Britain
Source: Accenture, 2015.The New Energy Consumer: Unleashing Business Value In A Digital World.
16
Japan
France
Non-traditional entrants
challenge incumbents
Evolving consumer values and preferences
are attracting non-traditional entrants,
and with the cost of innovation at an alltime low, both regulated and deregulated
markets are seeing an influx of new
players from all directions—startup digital
retailers, telecom giants and prosumers,
as well as incumbent utilities from
elsewhere. Technology giants, including
Google, Samsung and Verizon, are
partnering with incumbent hardware
and software providers to develop home
Internet-of-Things ecosystems, integrating
home energy management solutions in
a complete suite of home and lifestyle
services. Digital start-ups, such as Bounce
Energy in Texas and Powershop in New
Zealand, use platforms offering energy
packages and products, unburdened by
legacy investments and regulatory
requirements that traditional utilities
must contend with. Solar solution
companies like SolarCity allow consumers
and communities to cut out the utility
altogether and take control of their own
energy supply. Add players like Tesla and
Apple, planning to launch their EV-fleet in
2019, and one can expect to see a totally
different energy landscape in the near
future.
Investment by both disrupters and
incumbents in emerging technologies, as
well as the unbundling of services across
the value chain, will result in a major shift
of value in the coming decade. Solar
energy companies, for instance, received
by far the largest amount of startup
investment in renewables between 2012
to 2015, totaling €4.8 billion, with
SunRun and SolarCity among the major
recipients32.
It’s clear that traditional electric utility
companies—and their longstanding
business model—face a highly challenging
future, both in the short and long terms.
In fact, our research confirms that the
traditional utility value chain, based on
selling electricity as a commodity, is not
equipped for success in a low-carbon
world. However, these trends represent
significant new opportunities and new
sources of value that utilities can capture
with new business models that are built
with sustainability in mind.
Figure 8. Already-high expectations for new competition across a number of areas, increased in 2014.
Do you believe competition from new entrants will increase in the following areas in the next five years?
92%
Data-related services
(e.g., services that leverage energy
consumption data)
85%
81%
PEVs and associated charging infrastructure
59%
Demand-side aggregation
(i.e., load shifting services to distribution and
transmission companies or direct to electricity
markets)
Power electronics hardware and services
(e.g., deploy and sell power electronicsenabled services to distribution companies
or consumers)
79%
67%
73%
46%
2014
2013
Base: All respondents who selected “yes”.
Source: Accenture, 2014. Digitally Enabled Grid program, 2014 executive survey.
17
Value Shifts in a Low-Carbon World
18
If they continue to operate as they do now, utilities will face increasing challenges to
balance costs and revenues. In a 2°C world, the costs for the sector will increase by a
staggering €930 billion per-year in 2030 due to growing demand for electricity and the
introduction of carbon pricing.
According to our analysis, growing demand
for electricity will raise the costs of
building and operating power generation
facilities and networks by €484 billion
per-year in a 2°C scenario between 2015
and 2030 (Figure 9). This is an increase
of 33 percent of total system costs.
Carbon pricing will create additional
costs that will drive up electricity prices,
as existing Emissions Trading Systems
will be strengthened and broadened. In
2030, the power sector’s CO2 costs could
amount to more than €406 billion peryear, assuming strong carbon pricing
policy resulting in an average price of
€74 per ton CO2e33. Cost increases will
disproportionately affect consumers in
emerging economies, where demand for
electricity grows fastest.
Value modelling methodology
Value modelling analyzes a 2°C scenario*,
which illustrates what it would take to
achieve an energy trajectory consistent
with limiting the long-term increase in
average global temperature to 2°C. In this
scenario, energy efficiency measures will
reduce global electricity demand
by more than 3,500 TWh in 2030, or
11 percent lower than if the current
demand trend continues. The growth of
low-carbon electricity generation also
accelerates, increasing to 57 percent of
total supply.
This is facilitated by the introduction
of additional policy measures for CO2
emissions reduction, including targeted
energy efficiency improvements in
industry, buildings and transport,
limits on the use and construction of
inefficient coal-fired power plants,
and partial phase-out of fossil-fuels
subsidies to end-users. Crucially, carbon
pricing is introduced in all major
economies, with prices rising to €88
per ton in OECD countries and to €66
in emerging economies in 2030.
* The IEA New Policies Scenario is the basis for the Business-as-usual scenario, and the 2-degree scenario was based
on the IEA 450 Scenario. For more details about the assumptions behind the scenarios, please refer to the IEA
World Energy Outlook 2014, Chapter 1
Figure 9. Utilities will face rising costs, while revenues are under pressure
Increasing demand is generally good
news for utilities, as these costs reflect
rising demand for their products, and the
additional costs will be accompanied by
rising revenues. Similarly, rising CO2 cost
primarily affected end-users in the past
in the form of increasing electricity prices,
but this is less likely in the future. While
consumers had little choice but to buy
electricity from utilities, alternatives like
on-site generation and energy saving are
increasingly accessible and cheaper by
the day. This reduces the possibility of
covering CO2 costs fully through price
increases, undermining the profitability
of utilities.
Global utility costs and revenues in two scenario's in 2030 compared to 2012 situation.
Subsidies for electricity generation and consumption explain
the difference between costs and revenues in 2012.
0.2
0.7
+7%
+56%
2
2.2
-2.4
-2.2
1.3
-1.4
-0.9
+64%
0.2
2012
2030:
2°C with
traditional
business models
Amounts in trillion €/yr
Revenue
Demand growth
Costs
CO2 costs and demand growth
-7%
2030:
2°C with new
low-carbon
business model
pathways
Impact of new business
model pathways
19
While costs rise, the growth of revenues
from selling electricity will increase at
slow pace, because of a shift to revenues
from utilities to third parties, as end-users
start generating their own energy, and
new entrants capture part of the market.
In developed markets such as Europe and
the United States, the decline of revenue
from electricity commodity will be will be
partly offset by electrification of demand—
for example, in transportation and heating
and cooling36. In emerging economies, the
expansion of economic activity will still
increase demand for electricity, but a drive
for energy productivity will put pressure
on utilities for tight cost control.
All in all, however, utilities will see an
increasing gap between costs and
revenues. In fact, while utility cost are
expected to rise by 64% between 2012
and 2030, revenues will only increase
56%. Clearly this is not sustainable.
If costs rise without marginal revenues
keeping up, power plants become
unprofitable and would close, reducing
capacity and over time raising prices
even more for end-users.
So is the future for utilities one of
ever-escalating costs and pressures on
revenue? The answer is yes—but only
for those utilities unwilling or unable to
change the way they do business. Utilities
that see the opportunities inherent in
the industry’s changes and build the
appropriate business models to capitalize
on them will reap the rewards.
According to our analysis, the opportunities
for the electric utility industry sector are
worth €135 to €225 billion in saved and
avoided costs and €110 to €155 billion in
new revenue per year worldwide in 2030.
This impressive figure is spread across the
value chain in six value pools centered on
facilitating the shift to low-carbon energy
sources; optimizing across generation,
distribution, and end use; and meeting
end-user demand for energy efficiency
and local generation (Figure 10).
The costs of adapting to climate change
Climate change impacts will increase
operating costs as a result of extreme
weather events and the risks associated
with water availability for cooling
thermal power plants. The impact of
climatic changes—such as water
temperature, precipitation patterns,
wind speed and frequency of extreme
weather—is estimated to cost the
European power sector €15 billion to
€19 billion in 2080, for instance due
to rising costs of cooling for nuclear
power34. Similarly, the total annual
electricity production costs in the U.S.
in 2050 are projected to increase 14
percent (€45 billion) if no action is
taken, because of greater cooling
demand, compared with a control
scenario without future temperature
changes35.
Figure 10. Value pools with environmental and financial value
CO2
(Gton/yr)
Financial
(€ bn/yr)
0
Energy
efficiency
Low-carbon
electricity
generation
Plant & portfolio efficiency
0,5
Energy demand reduction
3,6
Local Low-Carbon electricity
0,5
Large-scale Low-Carbon
electricity
1,1
Flexibility optimization
CCS
Carbon capture and use
50
0,1
1,1
New revenues
20
100
Avoided and saved costs
150
Value pool 1:
Plant and portfolio efficiency
Enhanced energy efficiency in electricity
generation remains an important
conventional value pool for utilities.
However, additional CO2 savings achieved
in plant and portfolio efficiency will be
minor by 2030 (around 500 Mt CO2e peryear) because, as efficiency is an effective
cost-control measure, the business-asusual case already assumes improvement
in this area.
According to our analysis, the business
value of plant and portfolio efficiency
improvement could range between €35
billion and €55 billion per-year by 2030,
driven by reductions in operational and
CO2 emissions costs and equaling a 1
percent costs reduction versus current
conventional costs. Future wholesale
prices and CO2 emissions prices are the
main uncertainties that will determine
the actual value. Importantly, this value
pool will only be available during the
transition to a 2°C world; it will dry up
after 2030.
Eskom, a South African utility, provides
one example of a company making such
a transition. With coal accounting for
approximately 85 percent of its generation
capacity, Eskom plans to reduce its carbon
emissions by enhancing its coal generation
with clean coal measures such as pursuing
underground coal gasification, possibly
operating smaller coal units, and increasing
the use of lower-carbon emitting
technologies such as renewables, gas,
and nuclear37.
Value pool 2:
Energy demand reduction
End-user reduction in energy demand is a
game changer in the transition to a 2°C
scenario, as it will be highly effective in
cutting emissions, yielding a reduction of
as much as 3.6 Gt CO2e annually. Utilities
can earn back revenue losses from
electricity demand reduction by
capitalizing on the growing interest in
energy management products and
services—an estimated €65 billion to €80
billion per-year by 2030, depending on
customers’ willingness to pay and the
share of system benefits that utilities
manage to capture.
Value pool 3:
Local low-carbon energy
Demand for distributed generation will
create opportunities in local energy
initiatives. Accounting for decreasing
revenues from electricity commodity
sales, distributed renewables services
could enable utilities to generate revenues
of €10 billion and €20 billion per year
by 2030, while avoiding approximately
500 Mt CO2e emissions per-year.
Value pool 4:
Large-scale low-carbon electricity
As electricity generation shifts toward
low-carbon sources, assuming reduced
emissions in power generation will be
approximately 1.1 Gt CO2e annually,
revenue from low-carbon electricity will
offset the lost revenue from fossil fuel
generation.
Our analysis found this to be the largest
value opportunity for utilities in a 2°C
scenario, providing a benefit of €100
billion to €160 billion per-year by 2030.
These benefits are the result of savings in
fuel and CO2 costs related to displaced
fossil-fuel generation, and therefore
depend on CO2 prices as well as the rate
of cost reduction in low-carbon electricity
technology.
Value pool 5:
Flexibility optimization
System optimization and flexibility
management make a modest direct
contribution to emissions reduction of
approximately 100 Mt CO2e emissions
annually in a 2°C scenario, but they are
essential to reducing emissions
throughout the system.
Value pool 6:
Carbon capture and use
The 2°C scenario requires extensive action
to reduce CO2 emissions. Applying carbon
capture at fossil-fuel power plants could
be an important building block for
achieving this, if a conductive regulatory
environment is created. An additional
1.1 Gt CO2e per-year could be saved if,
by 2030, one-quarter of all coal- and gasfired power plants were to be fitted with
carbon capture and sequestration, thus
creating a new value pool focused on
the capture and use of carbon-based
products.
The commercial viability of carbon
capture is still a challenge today.
Deploying a coal-fired power plant with
CCS comes with a cost premium of 20 to
60 percent, and costs are expected to fall
only gradually; thus, the value generated
remains limited to 2030, up to €10 billion
per-year. Beyond 2030, however, this
value pool might expand, as opportunities
to generate value from carbon-based
products or CO2 might materialize.
As our analysis demonstrates, the lowcarbon future—while challenging—offers
opportunities. Although electric utility
companies will continue to see their
traditional revenue streams decline over
time due to the gradual phasing out of
carbon energy sources, significant new
revenue sources could take their place. In
the next section, we discuss five business
model pathways that will be critical to
utilities’ ability to capitalize on those
revenue streams.
By optimizing efficiency in all segments
of the value chain through the tight
matching of supply and demand, as well
as by maintaining system balance and
reliability, flexibility optimization will
create €35 billion to €55 billion per-year
value for utilities by 2030, depending on
how the value is shared among end-users,
utilities and other market players.
21
Five Business Model Pathways Toward
a Low-Carbon Energy System
22
Unlocking future growth will require utility companies to operate very differently—
and in some cases, become very different companies. According to Accenture Strategy
research three power plays can help utilities unlock future growth38: Energy solution
integrators provide entirely new services to help customers optimize their energy
production and consumption; Distribution platform optimizers meet demand with the
optimal sources of supply; Low-carbon energy producers optimize the mix of energy
sources. These represent platforms under which several low-carbon business model
pathways are possible.
Based on our research, we have identified five low-carbon business model pathways (Figure 11 and Table 2) that enable
utilities to tap into value pools by developing integrated energy solutions for end users, optimizing the distribution platform,
and generating low-carbon energy39. These business model pathways are not mutually exclusive nor exhaustive and no single
option will work for all utilities. Utilities should consider the merits of each as they make business portfolio decisions.
Table 2. Three power plays and five low-carbon business model pathways
Low-carbon energy producer
Distribution platform optimizer
Energy solution integrator
Large-scale low-carbon electricity
generators manage a low-carbon energy
portfolio.
Flexibility optimizers optimize efficiency
across the value chain by matching
supply and demand and maintaining
system stability and reliability
Energy as-a-service providers deliver
energy services to customers instead of
a commodity.
Carbon capture and use operators
reduce carbon emissions from carbonintensive plants and potentially offer
CO2 or carbon-based products as input
for industry processes.
Local low-carbon energy access providers partner with communities and individuals
to help them access locally generated low-carbon energy.
Figure 11. Five low-carbon business model pathways
Power Plays
Low-carbon energy producer
Generation
Market Operations/
Trading
CO2 reduction
measures
Transmission
Distribution
Energy solution integrator
Smart
Meters
Residential & SMB
Commercial & Industrial
Business model pathways
1
Energy
efficiency
Optimization of current business model
3
Low-carbon
electricity
generation
Distribution platform optimizer
Energy as-a-service provider
2
Large-scale low-carbon electricity generator
Local low-carbon energy access provider
4
Flexibility optimizer
Flexibility provider - Flexibility aggregator - Flexibility broker
5
CCS
CO2
CU
Carbon capture and use operator
23
Energy as-a-service provider
Energy-as-a-service realigns the utility
business model around delivering energy
services to customers instead of electricity
as-a-commodity—a focus that could
enable such companies to capture
business value between €65 billion and
€80 billion per-year by 2030 from the
energy demand reduction value pool.
Energy as-a-service providers help
customers reduce their energy use and
bills through monitoring and signaling
and by controlling devices remotely on
customers’ behalf. Eneco is one company
that has embraced this business model
by placing the customer-centric energy
management device “Toon” at the core of
its strategy. Toon helps consumers control
their building heating, lighting, and other
smart devices, and is the perfect contact
point for Eneco to leverage new services.
Becoming an effective energy-as-aservice provider will require a utility to
shift its revenue model away from volume
sold to benefits delivered—for example,
actual reduction in electricity use or
specific services delivered. Sustained
consumer trust will be vital within this
pathway. Energy-as-a-service providers
will need deep competencies in
understanding customers’ needs, energy
purchase criteria and usage behavior
(through customer analytics) and
multichannel interaction capabilities
to build strong customer relationships.
Providers also will require robust digital
capabilities that enable them to monitor,
analyze, and manage energy remotely
in real time.
Retail utilities are especially well
positioned to become successful energy
as-a-service providers. They can gain
access to customers with smart office
and connected home systems, and are
recognized as reliable suppliers of energy
solutions by consumers: 61 percent of
consumers are interested in buying energy
services from energy utilities40.
24
However, other players with strong
technology capabilities are entering the
energy services market and targeting
households through connected home
solutions. It is therefore essential that
utilities develop compelling customer
value propositions backed by seamless
execution. One way to do so is by joining
forces with other in-home service
providers—much like Direct Energy has
done. This large retail provider of
electricity, natural gas, and home services
in North America has teamed with Google
to support the adoption of Google’s Nest
services41.
In addition, traditional utilities are
partnering with promising new energy
startups to understand and explore how
to operate a new retail business. For
example E.ON, a traditional German
utility, is partnering with Sungevity, a
North American solar energy start-up that
is moving into the German residential
market.
Nevertheless, not all markets have the
right characteristics for such a model.
The most suitable markets are those
with the requisite infrastructure for
sophisticated energy services—in particular,
smart meters, smart grids, and a growing
number of end users with connected
devices. Extensive electricity use and high
electricity prices increase the market
potential for utilities. North America,
northern Europe, Japan and Australia
are among the regions most suited to
an energy as-a-service model.
Case Study—Eneco sees
business model innovation
and cooperation with
innovators crucial to its
longer-term existence
Type
Generation and wholesale sales of
electricity and heating, as well as
distribution and retail sales of electricity,
heating, and gas
Region
The Netherlands
Size
•2,988 MW installed capacity
•7.191 GWh generation output
•45,358 km electricity distribution
network
•2.2 million utility customers
Installed capacity42
43.8% conventional, 40.5% onshore wind,
10.0% offshore wind, 3.4% biomass,
2.4% sun
Generation output43
50.8% conventional, 26.3% onshore wind,
13.5% offshore wind, 3.4% biomass,
0.8% sun
Context & Strategy
The Dutch government is encouraging
consumers and retailers to reduce energy
demand via a national smart meter rollout that offers utilities and other
companies the opportunity to develop
products and services to monitor and
control energy. Eneco envisions itself as
a digital utility of the future and wants
to leverage the smart meter roll-out by
providing Energy as-a-service solutions.
Business model
Eneco has put the energy management
device “Toon” at the core of its customer
strategy. The Toon is a smart thermostat
and display that helps to optimize energy
efficiency and comfort for residential
housing. A digital platform that monitors
and controls energy use, Toon has been
installed in more than 100.000
households. Consumers pay a fixed
subscription fee for the device.
The successful uptake of Toon and the
access to its connected devices enables
Eneco to offer its consumers innovative
products and services to manage their
energy. For instance, working with the
Dutch startup Nerdalize, Eneco is testing
the feasibility of using waste-heat from
data servers to heat homes. A cooperation
with TESLA has led to an offering for
electric vehicle owners to earn money by
allowing an energy company to use their
car batteries for energy storage.
Utilities need to embed innovation in the
core of their business and develop
partnerships with innovative players in
the market. As Eneco’s chairman and CEO
puts, it “Successful partnerships where
both parties share the risk and rewards
drive us to become a truly digital utility.”
Key success factors
•Customer centricity
•Smart meter rollout
•Digital capability
•Smart devices partnerships
Case Study—With
Business model
Sungevity’s value proposition is managing
digital technologies and
the installation of PV panels with additional
a community-based
services such as lease, insurance,
approach, Sungevity brings monitoring, and other customer services.
the help of long-term (e.g., 20 years)
scale to the solar market for With
service relationships, Sungevity expects to
consumers
become a trusted brand for smart home
Type
Providing local low-carbon energy access
and providing of energy as-a-service
Region
North America, United Kingdom,
The Netherlands, Germany, Australia
Size
10,000 utility customers
Context & Strategy
Sungevity sees the conventional
electricity system changing to a more
democratized utility industry with a
growing number of distributed generation
systems. Information and communication
technologies are now available and are
getting cheaper, enabling the
management of electricity supply and
demand in real time and at scale, e.g.,
with demand response. Consumers are
becoming more and more involved and
service-oriented, due to their ability to
choose their retailer, enabled by new
digital technologies. Sungevity wants to
leverage these changing business
dynamics by broadening and deepening
the customer relationship
technologies and will sell new additions
to existing services, such as home energy
management, application scheduling, and
EV charging.
It foresees solar as the gateway to
the smart home market. Unlike other
conventional utilities’ business models,
Sungevity provides tailor-made solutions
aligned with customers’ needs. With the
help of new digital technologies and new
media, the company keeps track of its
customers’ preferences and enables
interactive relationships with its
customers.
In 2015, Sungevity entered the German
electricity market by partnering with
E.ON, utilizing E.ON as a sales channel
to millions of customers. For E.ON, the
partnership is a learning journey for both
parties to understand and explore how
to run a retail business.
Key success factors
•Understanding customer journey
•Digital capability (remote design)
•Capability on how to run an
interactive web
•Customer-centric approach
“Successful partnerships
where both parties share
the risk and rewards drive
us to become a truly
digital utility.”
“Its not a matter if all
roofs will be covered with
PV, its more a matter when
all roofs will be energy
producers”
Jeroen de Haas,
Chairman and CEO, Eneco
Danny Kennedy,
Founder & CEO Sungevity
25
Local low-carbon energy access provider
Local low-carbon energy access providers
partner with communities and individuals
to help them access locally generated
low-carbon energy—a market that, in our
analysis, could range between €10 billion
and €20 billion per-year in 2030. Utilities
can encourage local deployment of lowcarbon energy by individuals, businesses
or communities through products and
services that support distributed
renewables—such as solar PV, microgrid
installation, and maintenance and peerto-peer solutions for exchanging lowcarbon electricity. Local low-carbon
energy access providers help customers
finance, install, and maintain local
generation capacity and microgrid
infrastructures.
In addition, they build virtual platforms
that support collaboration among smallscale generators and consumers.
Two leading examples of such providers
are Dutch startup Vandebron, which
enables consumers to buy their electricity
from local low-carbon energy suppliers at
an online marketplace; and East African
for-profit social enterprise M-KOPA Solar,
which partners with telecommunications
companies Safaricom and Vodafone to
provide residential integrated solar systems
to poor and low-income customers
through an innovative technology and
financing platform with micro payments
via SIM cards44.
The biggest change required for electric
utilities adopting this model is shifting
their one-dimensional business-toconsumer relationship to a partnership
model, in which joint investments in
local generation and distribution lead to
shared profits and shared risks.
To add value and to gain the full trust of
small-scale generators and consumers,
utilities’ incentives must be transparent
and aligned with their customers’ needs.
Local low-carbon energy access providers
need deep competencies to build
partnerships with their customers to fully
understand customers’ energy-related
behavior and their buying decision factors
and process. They also require capabilities
in low-carbon generation solution
engineering and digital platform and
transaction management
Case Study—Enel foresees
renewables and microgrids
as a tool to enter new
growth markets
Two different types of markets are most
suitable for local low-carbon energy access
providers. One is a market with a large
consumer base that does not currently
have access to reliable energy due to offthe-grid locations or the absence of a basic
energy infrastructure—such as sub-Saharan
Africa. In such markets, low-carbon
methods can deliver energy to customers
in far less time than conventional ones.
Size
•96,112 MW installed capacity
•283.1 TWh generation output
•1.9 million km distribution network
•61 million utility customers
For example, Enel, a large global utility,
has electrified remote communities in one
year via solar, compared with the three
years it would have taken with a coalfired plant. Enel’s approach also provides
significant generation modularity in terms
of installed capacity, which is a major
benefit for growing communities.
The other market is one with a large
number of consumers who want to be
engaged in communities to develop lowcarbon energy generation because of
commercial or environmental drivers.
These include Australia, Western Europe,
and parts of North America.
Type
Generation and wholesale sales
of electricity, as well as retail sales
of electricity and gas
Region
Europe, the Americas, and Africa
Generation output
47% carbon-free generation (i.e.
with renewables such as hydro, wind,
geothermal, solar, and biomass)
Context and strategy
Enel sees significant opportunities
related to climate change mitigation.
The significance of these opportunities
led the company to reshape its strategy
and investment decisions: almost 50%
of growth capex is based on renewables.
The climate change challenge proved
to be a significant opportunity to
encourage innovation in Enel Group,
with a broad impact from generation
and distribution process and technologies,
to new energy services, to new business
models.
Its key strategic theme in emerging
countries is providing access to energy at
competitive prices while respecting the
environment.
Business model
Renewable energy projects pave the way
for Enel to enter new markets. Enel Green
Power is currently developing large wind
and solar projects in South Africa, where
it is one of the largest renewable players,
and is looking to expand in other African
markets such as Egypt, Morocco, Kenya
and Namibia.
26
Renewables allow the company to
electrify remote communities in a shorter
time compared with conventional sources
(i.e. up to one year for solar vs. more than
three for a coal-fired plant) and provide
significant generation modularity in terms
of installed capacity, which is a major
benefit for growing communities.
Case Study—Vandebron
enables direct trading
between customers and
local renewable energy
producers via its digital
marketplace
Creating shared value, promoting
sustainable development and contributing
to improving the social conditions of local
populations are objectives that are
intrinsic to Enel’s business model and
international approach.
Type
Brokering of electricity
The Group’s philosophy regarding action
to be taken in these domains is based on
giving priority to systemic development
projects that will provide new tools to the
involved populations, facilitating longterm changes.
Key success factors
•Innovation R&D, knowledge, and
adoption in the field of decentralized
generation and microgrids
•Skilled workforce contributing
to the growth of the electricity
market in emerging countries
•Corporate strategy supporting
decarbonization
•Full adoption of a Creating
Shared Value approach
“Renewables are at the core
of Enel’s growth strategy.”
Francesco Starace,
CEO and General Manager, Enel S.p.A.
Region
The Netherlands
Size
•50 MW connected third party capacity
•167 GWh generation output
•31,000 utility customers
•32 local electricity generators
Generation output
79% wind, 1% sun, 20% bio
Context and strategy
The Dutch market liberalization in 2004
enabled customers to choose their energy
supplier and different commercial
businesses to sell electricity on the
market. Since then, renewable electricity
demand has grown slowly—from 0.83%
to 2.15% in 2014 of the total energy
demand in the Netherlands45.
Vandebron is a new entrant in a saturated
market with an innovative business model
that directly connects renewable supply
to customers. In this model customers can
directly choose the source of their energy.
Since the launch of Vandebron in April
2014, it is the fastest-growing energy
supplier in Dutch history.
By cutting out traditional energy providers
as middlemen, producers get on average
10% more for their produced renewable
energy.
Thus, Vandebron gives energy producers
direct access to the market, which has
spurred investment in small-scale
generation. “Several producers on the
platform have made the decision to
increase their investments in renewable
energy production based on the increased
return on investment we offer,” according
to Vandebron’s founder, Van Veller.
Vandebron encourages consumers to
reduce their energy bills and organises
events for clients who are interested in
meeting their energy producer.
The main challenge in running the online
marketplace is to explain to consumers
the difference between Vandebron and
renewable energy contracts from
traditional suppliers, which are based on
foreign certificates and thus do not add
any new renewable supply.
Key success factors
•Customer centricity
•Customer loyalty
•Digital platform
“Current utility business
models are not geared to
creating long-term value
for the consumer.”
Aart van Veller,
Founder, Vandebron
Business model
Vandebron is the digital marketplace
where consumers can directly buy energy
from renewable electricity producers.
Consumers pay a fixed fee to access the
online marketplace and can buy energy
directly and without additional margin
from the producers.
27
Large-scale low-carbon electricity generator
Large-scale low-carbon electricity
generators manage a low-carbon energy
portfolio. These companies, such as SSE in
the United Kingdom and EDP in Portugal
and Span are uniquely positioned to offer
their customers, who chose to contract
for it, guaranteed low-carbon energy from
centralized and decentralized low-carbon
generation assets, owned directly by the
utility or managed on behalf of third
parties. According to our analysis, largescale low-carbon electricity generators
could tap into a market of between €100
billion and €160 billion per-year by 2030
by accelerating the transition to a lowcarbon energy supply market.
Large-scale low-carbon electricity
generators effectively optimize the output
of a diverse and robust generation
portfolio of variable and controllable
sources of supply. They anticipate and
mitigate impacts of climate change on
the production profile and availability of
different technologies, using a
combination of powerful generation
analytic tools and different assets
providing flexibility (e.g., demand
response and storage).
Importantly, such companies also provide
transparency and traceability of the lowcarbon origin of the electricity they buy,
supported by a market-based solution for
valuing low-carbon generation, which will
create a clear competitive advantage for
low-carbon generation. According to
Eskom, the South African utility planning
to decarbonize, new governance models
and a new mindsets are needed to cope
with different life cycles of generation
assets such as wind and solar46.
Thus, becoming a large-scale low-carbon
electricity generator requires a utility to
make portfolio choices that shift their
generation assets toward a diversified and
responsive portfolio of low-carbon assets.
An internal carbon price can serve as a
decision aide, and help utilities mitigate
the value depreciation of fossil
investments—as in the case of Iberdrola,
a large global utility, which closed its
largest coal plant that was responsible for
30 percent of its emissions. Effective
28
legacy management is key to keep
financial balances healthy, while deep
competencies in capital project
management, asset management, realtime analytics, portfolio balancing
operations, and certificates management
and communication are also critical.
Nuclear generation
Nuclear generation capacity is noted
as low-carbon generation in this report
and is expected to grow by approximately
50 percent by 2030. Nuclear’s portion of
the global generation mix will fluctuate
between 22 percent and 23 percent,
driven mainly by China’s growing
electricity market48. According to the
director general of the IAEA, the
“development of nuclear energy is
shifting increasingly toward Asia with
China playing a central role”49.
An important consideration for such
providers is to maximize the value of
circular economy principles—for instance,
by developing CCU or combined heat and
power plants. That is what SSE has done
as a strategic partner in a large-scale
carbon capture project, which
transformed part of SSE’s gas-fired
carbon-intensive plant in Peterhead,
Scotland, into a large-scale low-carbon
electricity generation asset . Another
company making the transition, E.ON, has
opted to keep its low-carbon and
traditional energy businesses separate.
The company plans to split into two
different entities: one that focuses on
low-carbon generation and electricity
grids and one that holds fossil fuel
assets47.
Getting a utility-scale low-carbon energy
generation model off the ground is easiest
in markets that have rich renewable
energy sources and strong grids that can
effectively manage variable generation.
Costa Rica, Brazil, Norway and Spain are
good examples of countries that are
typically well suited to utility-scale
renewable energy generation.
Case Study—SSE has many
of the capabilities required
for succeeding as a largescale low-carbon generator
Type
Generation (through subsidiaries),
transmission, distribution, and wholesale
& retail sales of electricity
Region
United Kingdom and Ireland
Size50
•11,773 MW installed capacity
•27.6 TWh generation output
•130,000 km electricity
distribution network
•3.7 million utility customers
Installed capacity51
45,4% Gas and Oil, 25.6% Coal (inc. biomass co-firing), 28.9% Renewables.
Context & Strategy
SSE has been a renewable energy supplier
for decades and is leveraging its legacy
position to further pursue the
decarbonization of its generation portfolio
through the deployment of large-scale
low-carbon generation assets. SSE chose
to exit from a nuclear partnership in 2011,
to focus on their competitive advantage
in renewables with a strategic focus on
wind power. SSE aims to reduce its
emissions intensity by 50% by 2020,
compared to 2006 levels.
Business model
SSE, operating the largest renewable
generation portfolio in the United
Kingdom, has many of the capabilities
required for succeeding as a large-scale
low-carbon generator. It has deep
renewable energy technology expertise,
knows the processes for securing planning
approvals, and has a long track-record in
developing and executing large-scale
hydro and wind assets.
It understands the importance of working
with stakeholders, as illustrated by its
long-term relationships with suppliers
and regulators, and its “responsible
developer” approach to managing
relationships with local communities.
Case Study—Iberdrola is
Business model
committed to developing its Embedding low-carbon sustainable
economic growth in its mission, vision,
business model as a largeand strategy, Iberdrola has shifted its
scale low-carbon electricity business model to large-scale clean
energy generation and has promoted the
generator
closure of its largest coal plant
SSE is aware of their dependency on
government frameworks advancing lowcarbon generation development. SSE is
seeking clarity through support for a
robust carbon price across the EU through
the EU ETS, so that the cost of carbon is
leveled and the need for renewables
subsidies and support can be progressively
reduced.
Type
Generation and wholesale sales
of electricity, as well as retail sales
of electricity and gas
Key success factors
•Technology expertise
•Planning approvals
•Capability in large-scale asset and
project management
•Capability in stakeholder management
•Continuous investments in green energy
portfolio
•Carbon pricing
•Transparency into emission
rates for customers
“As one of the UK’s
largest investors in low
carbon energy, SSE has
long argued for a strong
international carbon
framework that can
provide the right signals
for efficient investment.”
Alistair Phillips Davies,
Chief Executive, SSE
Region
Spain, United Kingdom, United States,
Mexico and Brazil
Size
•45,089 MW installed capacity
•138.9 TWh generation output
•1,064,555 km electricity distribution
network
•32.6 million utility customers
output52
Generation
43% conventional, 39% renewables
(hydro and wind), 18% nuclear
Context and strategy
Beginning in 2005, Iberdrola has changed
from a local-oriented company to an
international utility with cross-border
environmental concerns and ambitious
environmental goals. Iberdrola considers
itself as a pioneer, having started long
before climate change rose to the top of
the international agenda. Iberdrola sees
decarbonisation of the economy as an
opportunity to enhance competitiveness
and boost economic growth and job
creation.
Beyond complying with local
environmental regulations, Iberdrola
has set ambitious cross-border
environmental objectives with the help of
integrated performance management. In
2013, its emissions per kWh were 30%
lower than the average of the European
electricity sector, and by 2030 it wants to
reduce its emissions intensity to 50% of
those it generated in 2007.
that was responsible for 30% of its
emissions. Iberdrola has developed
a corporate culture focused on
sustainability by incorporating
environmental sustainability in its
key objectives.
It has linked environmental performance
directly to its economics by using an
internal carbon price for planning and
investment decisions53. Additionally,
Iberdrola’s sustainability rankings (e.g.
DJSI, FTSE4Good) affects executive
compensation.
Key success factors
•Embedding of persistent and
long-term visioning regarding
environmental matters
•Traceability and transparency
of GHG emissions
•Innovation and adoption
of clean technologies
•Decreasing costs of clean technologies
•Digitization of the energy system
favoring robustness
•Stable regulatory framewo
“Our priority is a model
of properly regulated
green growth that is
compatible with preserving
the environment while at
the same time supporting
low-carbon sustainable
economic growth that
creates jobs and wellbeing
for our company.”
Ignacio S. Galán,
Chairman and CEO, Iberdrola
29
Flexibility optimizer
Flexibility optimizers could capture value—
between €35 billion and €55 billion peryear by 2030 according to our analysis—
by optimizing efficiency in all segments of
the value chain and maintaining system
balance and reliability. Utilities can
enhance efficient electricity generation,
distribution, and demand and thereby
reduce operation and balancing costs and
improve system stability. At the generation
side, conventional flexibility such as
spinning reserve are replaced by energyefficient storage elements such as batteries.
In transmission and distribution, flexibility
optimizers mitigate congestion and match
supply and demand with the help of smart
grids and storage elements. And on the
demand side, demand response results in
optimized cost efficiency for the end user.
The flexibility optimizer business model
includes three sub-models:
1.Flexibility providers, which deliver
supply and demand capacity on
demand, generating revenues from
availability fees and supplying flexibility.
2.Flexibility aggregators, which provide
a platform that combines multiple
smaller sources of flexibility, giving
them access to balancing markets and
creating a pool of flexibility of
marketable scale.
3.Flexibility brokers, which facilitate
transactions in flexibility electricity
supply and demand capacity, which
can be used for balancing generation
portfolios or managing network load.
One example of a combined flexibility
aggregator and flexibility broker is Reposit
Power in Australia, whose residential
storage trading platform enables
households to become an electricity
market trader and reap profits from
automated buying and selling electricity.
Because of their emphasis on efficiency,
flexibility optimizers must be adept in
three key areas: addressing the complexity
and cost implications of the changing
composition and distribution of supply
and demand; aggregating and coordinating
systems such as electrification of vehicles
30
and heating and distributed generation
across locations and partners; and
capitalizing on opportunities provided
by future grid technology, such as
automation, sensing devices, and realtime analytics capabilities to improve
real-time management of the grid.
With the right plan and effective
implementation, utilities can balance
investment with an opportunity to
establish a more cost-effective, optimized
distribution system54.
Several capabilities are vital to the success
of flexibility optimizers. To optimize
revenues on the commodity and balancing
markets, they must have deep
competencies in analytical and trading
capabilities that generate insights into
the real-time and projected aggregated
capacity availability, network load and
market demand. For example, Chilean
utility Colbún has developed tools to
monitor and forecast the water level in its
basins to support flexibility management
with its hydro generation capacity.
Flexibility optimizers also must orchestrate
the supply and deployment of low-carbon
and reliable flexibility at scale, combining
demand response, storage, and flexible
supply. Finally, they require digital
capabilities to support these activities,
including real-time network monitoring
and control, distribution automation, and
device-level intelligence.
Demand for flexibility optimizers tends
to be strongest in regions such as North
America: areas that are partially regulated
with transparent and easily accessible
balancing markets. Also suitable for
flexibility optimizers are regulatory
environments that enable dynamic-based
pricing to encourage operators of power
plants, energy storage systems, and end
users to adjust their supply or demand
according to system needs. In such
markets, demand-response services that
incentivize households and small
businesses to provide flexibility require a
high penetration of smart infrastructure
and connected devices behind the meter.
Case Study—Colbún
foresees a new business
opportunity for its
hydroelectric generation
assets, acting as flexibility
providers in a high
intermittent energy system.
Type
Generation and wholesale
sales of electricity
Region
Chile
Size
•3,278 MW installed capacity
•12,835 GWh generation output
Generation output
51,8% hydro, 48,2% thermal
(e.g. gas, coal, and diesel)
Context and strategy
Colbún has identified a shift in Chile’s
demand, favoring low-carbon energy
systems over polluting ones, resulting in
a revision of Colbún’s expansion strategy,
energy mix, sales commitments, and
stakeholder management for new energy
development.
Therefore, Colbún is enhancing its lowcarbon generation capacity and flexibility
with the development of extra hydro and
combined cycle gas turbine capacity.
According to Colbún, a mixed portfolio
of hydro and thermal responds best to
Chile’s challenges in terms of social and
environmental sustainability,
competitiveness, and security of its
energy matrix.
Business model
Colbún sees a new business opportunity
for its hydroelectric generation assets:
providing flexibility to Chile’s energy
system in addition to providing baseload
electricity. The increase of nonconventional low-carbon electricity
generation is leading to high
intermittency; therefore, there is a strong
need for flexibility in the future energy
system. To support flexibility management
with its hydro assets, Colbún has taken
steps to develop tools to monitor and
forecast the water level in its basins.
Colbún takes a long-term and holistic
approach to supplying low-carbon
electricity from its hydro power plants,
striving to harmonize technical
requirements (flexibility and regulation
capacity) with environmental and local
social issues. For example, from a social
perspective, Colbún has assisted local
communities and farmers with its hydro
storage capacity to manage water
resources efficiently and is working to
mitigate the impacts of its exposure to
extreme weather events such as droughts
and floods.
Key success factors
•Holistic approach to the energywater-food nexus
•Partnerships with local government,
communities and competitors
•Monitoring and forecast analytic
capabilities in flexibility supply
and demand
•Ability to fluctuate generation
output
“Chile has abundant
water resources but the
challenge is to use them
in an efficient way before
they reach the ocean.”
Case Study—Reposit Power
wants to maximize the
value of storage assets by
enabling real time flexibility
trading
Reposit provides a trading platform to
enable customers with storage devices to
capitalize on their assets by collecting
profits from automated real-time buying
and selling of electricity on the wholesale
and retail markets at favorable prices.
Type
Optimizing flexibility
Reposit’s technology provides the access
and control, but flexibility providers and
buyers mutually decide on the contractual
transaction of flexibility.
Region
Australia
Size
Emerging market with significant growth
expected as availability of storage
increases.
Context and strategy
Reposit Power sees increased flexibility
management as the solution to technical
and financial difficulties the grid is facing,
e.g., increasing intermittency, emerging
capacity constraints, and rising network
costs. Reposit anticipates an economically
responsible rollout of usable flexibility
capacity that enhances the overall health
and performance of the complete
electricity system.
It wants to maximize the returns that
storage assets could make by delivering
flexibility services to the grid, market
parties, and consumers, i.e., by
aggregating and controlling storage
assets and connecting them to the
flexibility market.
Business model
Reposit foresees a large-scale deployment
of residential storage batteries within one
year in mature markets such as Australia,
New Zealand, the U.S., and the E.U.
Therefore, it is focusing on aggregating
residential storage elements.
Reposit anticipates serving transmission
and distribution service operators with
contracts for line voltage control and
frequency control services, reducing their
costs for deploying new infrastructure to
cope with increases in intermittent and
distributed generation. Partnerships with
storage providers such as Tesla are key to
connect and control the residential
storage units digitally.
Key success factors
•Mature market with dynamic pricing,
high degree of liberalization, and high
degree of interconnectivity between
suppliers and consumers
•Digital and electro-technical
capabilities
•Cooperation with key stakeholders
in the energy system network, e.g.,
balancing responsible parties, storage
providers, retailers, and consumers
“Increased flexibility
management is the
solution to technical and
financial difficulties the
grid is facing.”
Lachlan Blackhall,
Co-founder and CTO, Reposit
Thomas Keller L.,
CEO, Colbún
31
CO2
CU
Carbon capture and use operator
Carbon capture and use (CCU) generates
value by reducing carbon emissions from
carbon-intensive plants and offering
carbon as a feedstock for industry
processes and products. While today,
carbon capture costs are high and current
regulatory frameworks make it difficult
to develop a profitable business case,
our analysis projects CCU to become a
potential €10 billion market by 2030.
More so than with the other business
models, carbon pricing will play a major
role in accelerating the value generated
by CCU. It is also important that
externalities like water scarcity are
assessed with this option, as it can be
high in water consumption. An example
of a contemporary carbon capture and
use operator is NRG, a large North
American utility, which will capture
carbon in a 250 MW slip stream from its
610 MW plant in Thompsons, Texas, and
reuse the carbon in enhanced oil recovery
processes.
While current CCU initiatives focus on
fossil fuels, utilities could even go “carbon
negative” in the future by capturing CO2
emissions from power plants that burn
“sustainable biomass,” effectively taking
CO2 out of the air.
In some cases, utilities could opt to
extend their investment in CCU—by
developing and applying CCU technology
to give their power plants a competitive
advantage in markets subject to carbon
pricing, and by selling and installing the
technology at other energy plants. The
Korean utility KEPCO is headed down this
path, foreseeing a role for the company
to enter new markets by leveraging its
knowledge and expertise in CCU.
Thus, CCU utilities need deep
competencies in technology and
operations that support the capture,
storage and use of CO2 to reduce the cost
of carbon capture and increase the value
of the carbon “waste.” They also need to
manage their CO2 infrastructure at the
technical, regulatory, and legal levels, or
work with partners that have these
capabilities. The ability to become a trusted
business partner among companies in other
industries that use CO2, as well as deep
knowledge of key processes used in those
industries, will be critical to uncovering
innovative ways to use carbon as inputs
outside of the energy sector.
CCU is best positioned to thrive where
carbon-intensive and carbon-demanding
industries are located closely together—
which effectively means many areas
around the world*. A simple example is a
horticultural zone, a large surface area
covered with greenhouses that use
sequestrated carbon from nearby energy
plants to enhance algae and crops
growth. Bioprocess Algae in the United
States does just that. The company’s
technology harvests CO2 emissions from
an ethanol plant in Iowa, which it uses
to grow algae for livestock feed55.
Similarly, in India, Tata Power, an Indian
electric utility, is involved in CO2 capture
from its Trombay coal plant for
subsequent use in algae growth56. Other
examples of current CO2 use are beverage
carbonation and precipitated calcium
carbonate processing for food and
pharmaceutical industries57.
To become an effective CCU operator,
utilities must apply circular economy
principles to carbon that enable it to
transform from “waste to wealth.”
* In addition, CCU is most suitable in geographies with an abundance in water supply, as current carbon capture
technology requires significant amounts of water for cooling.
32
Case Study—Carbon capture
and use is essential to NRG
for the long-term viability
and sustainability of its
carbon-intensive generation
assets
Type
Generation & wholesale and
retail sales of electricity,
Region
United States
Size
•53,478 MW installed capacity
•130 TWh generation output
•3 million utility customers
Installed capacity58
48% gas, 31% coal, 11% oil,
6% wind, 2% solar, 2% nuclear
Generation output59
23% gas, 62% coal, 1% oil, 5% wind,
2% solar, 7% nuclear
Context and strategy
NRG’s strategy is focused on corporate
growth by transforming to a low-carbon
independent electricity producer and
retailer, with a target to reduce its carbon
emissions by 50% by 2030 and 90% by
2050 based on emissions level from 2014.
Its three-pronged business strategy entails
deploying low-carbon energy solutions
across the value chain, adding clean energy
retail offerings, and modernizing its
generation fleet to reduce CO2 emissions60.
To enhance the long-term viability and
sustainability of its coal-fired plants and
maintain a diversified base-load generation
portfolio, NRG is developing a capability
to capture and use CO2.
Business model
NRG is currently developing the world’s
largest post-combustion carbon capture
project, which will capture carbon in a 240
MW slip-stream from its 610 MW plant in
Thompsons, Texas, and offer the carbon
to enhanced oil recovery processes.
The project is a 50/50 joint venture
between NRG and JX Nippon Oil & Gas
Exploration, and is expected in commercial
operation in late 2016. The company has
acquired a working interest in the West
Ranch oil field by partnering with Hilcorp
Energy Company. Captured CO2 will be
injected into the oil field, permanently
storing it underground, increasing oil
yield, and generating revenues from
CO2 use61.
Case Study—With CCS,
KEPCO can save CO2
on a national scale and
KEPCO can boost overseas
technology exports in a
world with increasing
demand for low-carbon
generation units
Enhanced oil recovery is not considered to
be a sustainable use of CO2, but rather is
a short- to medium-term revenue stream
expected to close the business case for
commercial-scale carbon capture and use
under the assumption of oil prices reaching
€80 per barrel. In an era of €35 oil, NRG
is pursuing lower-cost technologies and
higher-value returns for CO2 to allow
further implementation. With increased
experience, economies of scale, and
advanced carbon capture technologies,
NRG expects to reduce CAPEX and OPEX,
thereby enhancing the economic viability
of carbon capture and use for more
sustainable industrial processes.
Type
Generation (through subsidiaries),
transmission, distribution, and wholesale
and retail sales of electricity
Key success factors
•Availability of centralized
high-carbon emissions
•Availability of carbon storage space
•Proven and less-expensive capture
and use technologies
•Higher-value uses for CO2
•Carbon pricing
•Government subsidies
“As the U.S. transitions
to a renewables-driven,
increasingly distributed,
grid resilient energy
system, we expect to be
a leader both in clean
energy and in converting
the CO2 emissions of our
conventional generation
from a liability to a
profitable by-product.”
Region
Global, with a strong focus on South
Korea
Size
•93,216 MW installed capacity
•522.0 TWh generation output
•457,257 km electricity distribution
network in South Korea
•21.9 million utility customers
Installed capacity
61,5% conventional, 22,2% nuclear,
6,9% hydro, 9,4% alternative renewables
Generation output
62,0% conventional, 30,0% nuclear,
1,5% hydro, 6,5% alternative renewables
Context and strategy
Physical climate change and regulations
pose a risk to KEPCO’s high-carbon
operations, leading to increased capital
and operational costs due to increased
electricity demand and South Korean’s
ETS. Therefore, KEPCO seeks to develop
and deploy low-carbon, green energy
technologies and solutions (e.g., smart
grids, new low-carbon electricity
generation), and to enhance operational
efficiencies of conventional power
systems. In its corporate vision for 2020,
it identified low-carbon electricity and
smart technology as key initiatives for
future growth
KEPCO sees the increase in global demand
for low-carbon generation units as an
opportunity for 1. its exports in nuclear
power plant construction and operation
technologies; and 2. investment projects
in carbon-reducing innovations.
Business model
KEPCO currently runs a leading
development program in CO2 capture
and storage. Together with its electricitygeneration subsidiaries and CCS
subsidiary Korea CCS Association, it
actively invests in research and
demonstrates business models. KEPCO
operates two 10MW pilot CO2 capture
plants, one wet and one dry—the latter
being the first and largest in the world.
As a result, 146,000 tCO2 is captured
annually. KEPCO’s CO2 absorber delivers
global top performance, and its plants’
cost is €35~€55/tCO2, compared with an
average cost of €55~€70/tCO2 in other
OECD countries. The plants are expected
to contribute to the development of
commercializing CCS, and subsequently to
the reduction of greenhouse emissions,
not only in the utilities sector but also in
the cement, bio-products, medicalproducts, chemical goods and agricultural
sectors. KEPCO foresees CCS as an
opportunity to save CO2 emissions on a
national scale and to export this
technology overseas.
Key success factors
•Availability of centralized
high-carbon emissions
•Availability of carbon storage space
•Carbon taxation/pricing
•Government subsidies
•Proven capture and storage technology
•Generating revenue from carbon use
(not essential for KEPCO)
“KEPCO believes CCS will
play a critical role in fossil
fuel electricity generation
by 2020.”
Hwan-Eik Cho, President and CEO, KEPCO
David Crane, CEO, NRG
33
Table 3. At a Glance: Five Sustainable Utility Business Model Pathways for the Future
Energy as-aservice provider
Local low-carbon
energy access
provider
Large-scale lowcarbon electricity
generator
Flexibility
optimizer
Carbon capture
and use
operator
Value proposition
•End users have realtime, actionable insight
and control to reduce
energy usage and
expenditure
•End users have access
to local low-carbon
energy from own
resources, and can
exchange it with other
local producers and
communities
•End users purchase
traceable, certified and
cost- efficient lowcarbon energy
•Utilities have lower
capital expenditures for
low-carbon integration
and lower balance
settlement costs. End
users have lower energy
expenditures through
providing demand
flexibility
•Utilities reduce
carbon emissions
and carbon
emission costs of
fossil-fueled power
generation
Type of service/
product
•Energy monitoring,
signaling, and control
services
•Energy efficiency advice
and installation
•Mobility services
•Financing services
•Peer-to-peer exchange
services (platform)
•Local low-carbon
energy products
and services
•Microgrid technology
products and services
•Financing services
•Low-carbon energy
commodity supply
•Third-party lowcarbon energy asset
management and
operations
•Third-party lowcarbon energy portfolio
optimization
•Flexibility aggregation
services
•Flexibility brokerage
services (platform)
•Flexibility supply
•CO2 capture
technology
•CO2 capture system
operations
•CO2 as resource
for other processes
Key success factors
•Understanding
customer journey
•Developing trusted
relationships
•Building connections
with consumers,
prosumers and
communities
•Managing demand
and supply at scale
•Balancing divers
portfolios
•Ensuring reliable supply
•Providing transparency
and traceability of
electricity sources
to end users
•Develop electricity
storage
•Deploying smart meters
and connected flexible
devices
•Managing smart grids
and telecom infrastructure
•Processing and
analyzing information
in real time
•Development and
decreasing costs
of carbon capture
technology
•CO2 price
development
•Viable use of CO2
as resource
Key capabilities
•Customer relationship
management
•Real time monitoring
and control
•Customer analytics
•Energy efficiency
solution engineering
•Data security
•Customer relationship
management
•Low-carbon generation
solution engineering
•Digital platform
and transaction
management
•Capital project
management
•Electricity generation
asset management
•Real-time portfolio
balancing
•Renewable energy
certificates
management and
communication
•Real time monitoring
and control
•Digital platform
and transaction
management
•Capital project
management
•CO2 capture,
storage, and use
technology
development and
installation
•CO2 capture
systems operations
Customer segments
•Households
•SMEs
•Industrial facilities
•Public sector facilities
•Households
•Communities
•Industrial facilities
•Public sector facilities
•Electricity retailersCommunities
•Industrial facilities
•Public sector facilities
•Balance responsible
parties
•Transmission and
distribution system
operators
•Flexibility providers
(households, industrial
facilities, commercial
businesses, public
facilities)
•Flexibility optimizers
•Electricity
generators
•Carbon intensive
industry
•CO2-using industry
•Agriculture
Revenue model
•Fixed and resultbased service fees
•Data insights to
third parties
•Energy sales
•Fixed and result-based
asset management
and service fees
•Low-carbon product
sales
•Low-carbon electricity
sales
•Renewable energy
certificate trading—
Fixed and result-based
service fees for asset
and portfolio
management
•Flexibility delivery fees
•Standby fees
•Fixed and resultbased service fees
for aggregation and
brokerage
•Aggregation of
flexibility providers
•Carbon capture
technology and
installation sales
•CO2 as a product
sales
Key geographies
•Mature markets
•All
•All
•Mature markets
•All
Market conditions
•High electricity
consumption and prices
•High levels of
connectivity of
appliances
•Smart meters
•Electricity price
development of
renewable electricity
vs. alternatives
•Sustainability focus
of end user
•Capability of
distribution grids to
integrate local
renewables
•Electricity price
development of
renewable electricity
vs. alternatives
•Capability of
transmission and
distribution grids to
integrate renewables
•Fully liberalized
electricity markets
•Dynamic time-based
pricing
•Transparent and
accessible balancing
market
•Carbon intensive
power plants and
industries
•Suitable
geographical
conditions for CO2
storage
•CO2 demand from
industry or
agriculture
Fundamental
disruption
•From energy volumebased revenue to
energy reduction-/
services-based revenue
•Shift to independent
distributed and off-grid
solutions
•Shift in value from
traditional to lowcarbon generation
value
•Shift of value from
volume to flexibility
and capacity
•Turning CO2
emissions from a
liability into a
resource* 62
* Subject to the type of carbon capture technology employed, and externalities such as local water scarcity.
34
35
Making the Move:
Key Actions to Drive Transformation
36
As the previous chapters illustrate, electric utilities will face a common challenge in
transforming their business for a 2°C world. But the specifics of that transformation—
strategies, roadmaps and timelines—will vary depending on a utility’s current asset base,
its role in the value chain, and its local market and regulatory environment.
For instance, while utilities in North
America and Europe need to replace current
power generation with cleaner alternatives,
utilities in emerging markets such as China,
India, and Africa must continue to support
economic growth and meet increasing
power demand with both replacement
solutions and additional low-carbon power
generation capacity. Utilities in Africa could
leapfrog the fossil era entirely by directly
implementing an intelligent and distributed
low-carbon energy system from the
start—much as the continent did in
telephony by bypassing the installation of
landlines and moving straight to mobile
phones.
Key areas of immediate focus include
boosting fuel efficiency in power plants
(by, for example, lowering spinning
reserve costs by using electricity storage);
reducing grid losses and investments
(by, for example, introducing enterprise
asset management capabilities to improve
both capital efficiency and operational
efficiency); digitalizing retail processes to
lower cost to serve and improve customer
relationships; and building capabilities to
optimize and balance across the value
chain, using supply and user analytics
as well as asset intelligence to manage
variability and diversity on a tactical and
strategic level.
Despite these variables, however, there
are several high-level actions that all
utilities will need to consider as they
begin their transformation toward a lowcarbon energy system.
3. Choose where to play and
transform
1. Take leadership and commit
Low-carbon is here to stay. Thus, electric
sector players should ensure that all levels
of the organization not only are aware of
the impending move toward a 2°C
scenario, but also why the company’s
competitive future depends on embracing
low-carbon solutions.
Beyond cultivating internal awareness,
utilities need to begin setting in motion
what is necessary to make the transition.
This includes basing investment planning
and decision making on realistic and
rising CO2 costs and setting long-term
CO2 and renewables targets, starting at
C-Level. It also includes determining
how to effectively manage legacy and
divestments and working with government
to develop ambitious goals for ending
fossil-fueled power generation altogether.
2. Keep optimizing
While utilities should keep their eyes on
the ultimate 2°C goal, in the near term
they need to continue optimizing current
operations to reduce CO2 emissions and
free up funds for their business model
transformation.
Historically, business model innovation
has not been at the heart of the
traditional electric utility. That must
change, as utilities are forced to reinvent
their role in the value chain. To ease the
transition, utilities should consider a twopronged approach. First, develop lowcarbon business models and strategies
that build on their current capabilities
and are tailored to local market
conditions.
Second, establish new businesses in
separate entities, independent of the
existing ones, to help ensure they are
developed quickly, with agility and
entrepreneurial spirit. Such a hybrid
model combines elements of traditional
asset-intensive businesses with an
increasing emphasis on revenue generation
from services-oriented businesses based
on low-carbon generation assets. In doing
so, the model ensures stable revenues as,
over time, the new businesses eventually
takes over from the conventional ones.
51%
of CDP utility respondents use an
internal price on carbon and an
additional 15 percent is anticipating
doing so in the next two years
39%
of CDP utility respondents provide
a monetary incentive to their C-level
executives for the management of
climate change issues, including
emissions reduction targets and
efficiency targets
Source: CDP, 2015. CDP Climate Change Information
Request
From there, a utility should create
a roadmap that will guide the
transformation and begin building the
new model. A utility also may find it
valuable to build partnerships and
ecosystems with other utilities, startups
and companies in other industries to
exchange knowledge, capabilities, and
potentially funding.
4. Join forces to develop capitalintensive innovations
To make both electricity storage and CCU
economically viable and commercially
implementable, large investments are
needed. Thus, utilities should join forces
(and budgets) globally—both within the
energy sector as well as in other
industries—to fund research, testing,
piloting and scaling of technologies for
electricity storage and carbon capture and
use. Such joint efforts and partnership will
be critical to marshaling the resources,
time and expertise necessary to building
and sustaining momentum and meeting
the industry’s ambitious timeline.
Based on our analysis, the most effective
transition approach begins with
identifying the right business model(s),
based on the value potential of each and
the utility’s ability to capture that value.
37
In the drive toward a low-carbon future, two
things are clear: The world must move quickly
and ambitiously to deal with greenhouse gas
emissions that threaten both the planet and the
global economy; and utilities are in many ways
at the heart of that movement. Indeed, with 25
percent of carbon emissions globally generated
by utility companies, the world simply will not
be able to achieve its ambitious sustainability
goals without an engaged, motivated, and
effective power sector.
The good news is that utilities are well aware
of the challenges of the energy transition.
They also understand the business opportunities
that arise as value shifts toward low-carbon
solutions. Some leading utilities are already
tapping into value pools by reshaping their
companies around low-carbon business model
pathways. As the success of these leaders grows,
they will serve as inspiration for other utilities
that are starting their own transformation.
The awareness of the challenge is there, as
are the motivation and the path forward. Now
utilities need to take action at scale and at
speed.
38
39
Appendix
Assessing the Value of Low-Carbon Business Model Pathways
Modelling scenarios
The value analysis compares a 2°C scenario
against the current trajectory of CO2
emissions (business-as-usual).
In the 2°C scenario, CO2 emissions are
50% lower in 2030 because of:
•Additional measures in energy efficiency
(3,584 TWh additional electricity
saving in 2030),
•More low-carbon electricity generation
(additional 3,232 TWh in 2030)
displacing fossil-fuel generation,
•The application of carbon capture and
storage at coal- and gas-fired power
plants (covering 3157 TWh of fossil-fuel
generation by 2030).
The 2°C scenario is based on scenarios
from the IEA World Energy Outlook 2014*.
It illustrates what it would take to achieve
an energy trajectory consistent with
limiting the long-term increase in average
global temperature to 2°C.
This scenario assumes that a CO2 price is
adopted globally in electricity generation
and industry, at a level sufficiently to
make investments in low-carbon solutions
attractive. Wholesale electricity prices
rise modestly between 2015 and 2030 in
North America, from €44 to €57 per MWe,
and in China from €57 to €73 per MWh,
while prices in Europe increase to €101
per MWh in 2030.
Figure 12. Development of electricity sector CO2 emissions in the two scenarios
Global electricity sector CO2 emissions
Additionally, it assumes a phase-out of
all fossil-fuel subsidies by 2035 and
increased energy efficiency standards
in buildings and transport.
In the electricity sector, capital investment
has shifted towards renewables. The
construction of coal-fired power plants
is limited, but no accelerated closure of
fossil fuel power plants are taken into
consideration.
Assessing the costs and revenues
for utilities
The value model calculates the costs and
revenues for utilities in these scenarios,
using projections of the costs of generating
electricity for each technology (‘levelized
costs of electricity’), and forecasts of
prices of electricity and CO2, as reported
by the IEA. These were applied to the
future amount of electricity generation
and the mix of technologies used to
produce this, resulting in the overall costs
of running the electricity system.
Gt CO2e
16
15
14
13
• Energy efficiency
12
-50%
11
10
9
• Low-carbon electricity
generation
• Carbon-capture &
storage
8
7
The assessment revenues uses projections
of electricity and CO2 prices. These
projections are an average of price
projections for major geographies (US, EU,
China, India, Brazil), weighted by total
demand for electricity per geography.
6
5
4
3
2
1
0
The total costs were distributed over
utilities and other parties based on typical
ownership shares per technology.
Similarly, we derived the CO2 emissions
by technology and by system actor using
the current and projected CO2 emissions
factors as reported by the Intergovernmental Panel on Climate Change.
2010
2020
2°C Scenario
2030
2040
Business-as-usual Scenario
* The IEA New Policies Scenario is the basis for the Business-as-usual scenario, and the 2-degree scenario was based on the IEA 450 Scenario. For more details about the
assumptions behind the scenarios, please refer to the IEA World Energy Outlook 2014, Chapter 1.
40
Assessing new revenue
opportunities in a 2°C scenario
Utilities can develop new streams around
energy efficiency, low-carbon electricity
production and carbon-capture and
storage in the 2°C scenario, and thereby
compensate for lower commodity
revenue. Based on a scan of emerging
initiatives, we have identified six value
pools:
•
•
•
•
•
•
Plant and portfolio efficiency
Energy demand reduction
Large-scale, low-carbon electricity
Local low-carbon energy
Flexibility optimization
Carbon capture and use
We assessed the value of these value
pools by combining projections of the
scale of deployment of the related
measures or technologies, and the typical
value that utilities generate from providing
these services. For electric vehicle services,
for instance, we used projections of the
number of electric cars on the road around
the world, and the electricity usage and
service fees that utilities could charge for
these, based on real-life examples. For
more information, please reach out to the
authors of the report.
Table 4. Overview of main modelling assumptions for the two scenarios
Business-as-usual
2°C scenario
Global electricity generation
Increasing from 22,721 TWh in 2012 to 33,881 TWh
in 2030
Increasing from 22,721 TWh in 2012 to 30,296
TWh in 2030
Share of renewable electricity
generation
Increasing from 21% in 2012 to 30% in 2030
Increasing from 21% in 2012 to 41% in 2030
Global power sector CO2 emissions
Increasing from 13.2 Gt in 2012 to 14.5 Gt in 2030
Decreasing from 13.2 Gt in 2012 to 7.3 Gt in 2030
Policy environment
Continuation of current policies, including targets
and programs to support renewable energy, energy
efficiency, and alternative fuels and vehicles, as well
as commitments to reduce carbon emissions, reform
energy subsidies and expand or phase out nuclear
power.
Introduction of additional policy measures for CO2
emissions reduction, including targeted energy
efficiency improvements in industry, buildings and
transport, limits on the use and construction of
inefficient coal-fired power plants, and partial
phase-out of fossil-fuels subsidies to end-users.
CO2 pricing
Present in the EU, China, South Africa, Korea and
Chile, with prices rising to between €13 per ton
and €33 per ton in 2030
Present in all major economies, with prices rising
to €88 per ton in OECD countries and to €66 in
emerging economies in 2030
Figure 13. Methodology for assessing the costs and revenues in the two scenarios
Business-as-usual scenario
• Electricity demand
• Generation mix
2°C scenario
• Electricity demand
• Generation mix
Business-as-usual scenario
Characteristics per technology
• Levelised costs of electricity
by item (investment, O&M,
fuel, T&D, CO2)
• CO2 emissions factor
• Distribution of ownership
(utility or end-users)
• Utility costs
• Utility commodity revenue
2°C scenario
• Utility costs
• Utility commodity revenues
41
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34 Based
43
Join the conversation
@AccentureStrat
Contact the authors:
Manon van Beek
manon.j.j.van.beek@accenture.com
Alexander Holst
alexander.holst@accenture.com
Justin Keeble
justin.keeble@accenture.com
Additional contributors:
Joost Brinkman, Stephanie Bronchard,
Jonathan A. Burton, Alexander
Cramwinckel, Sytze Dijkstra, Pedro Faria,
Michiel Frenaij, Sander van Ginkel,
Ana Clara Gimenez, Kirsten Kramer,
Esben Madsen, John K. Rhoads, Karina
de Souza, Sergio Veth, Serge Younes,
Roberto Zanchi
About Accenture
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Claudy dos Santos Jr (AES Tiete), Eduardo
Brumer (AES Tiete), Patricia Byington (AES
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Oviedo (Iberdrola), Sang-Won Lee
(KEPCO), Wee-Kyung Choi (KEPCO),
Tae-Keun Kim (KEPCO), Candice Adams
(NRG Energy), Laurel Peackock (NRG
Energy), Lachlan Blackhall (Reposit
Power), Rachel Turner (SSE), Justyn Smith
(SSE), Alan Young (SSE), Danny Kennedy
(Sungevity), Sanjay Neve (Tata Power Co),
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